Seed-Co looks to West Africa growth

Seed producer and marketer, Seed Co Limited has embarked on an ambitious drive to establish a base in Nigeria as it seeks to penetrate the West African market following the disbursement of a second and last bunch of US$27 million from Limagrain under a US$40 million equity deal.

Limagrain is an international agricultural concern specialising in seed and cereal products.

Through its Vilmorin & Cie unit, Limagrain first acquired a 15 percent stake in Seed Co — the first tranche of shares under the deal — after it was issued with 37,6 million shares and concurrently bought another 20,5 million shares, a portion of Aico’s stake in Seed Co through placement.

Vilmorin paid 109 US cents in the private placement which, according to regulations, was supposed to be exercised before December 31 leading to the injection of US$27 million into Seed Co.

Seed Co increased its shares in issue by 27 389 433 to cater for the call option which Limagrain’s Vilmorin & Cie exercised to increase its shareholding to 33 percent.

Seed Co group chief executive officer Mr Morgan Nzwere told The Sunday Mail Business that some of the funds from Limagrain would be deployed into the company’s regional expansion programme.

The funding is also expected to reduce high finance charges that Seed Co has been incurring due to a huge debt on its balance sheet estimated at US$36 million.

Until the coming of the funds, Seed Co’s operations were hamstrung by cash problems because Government, which owes the company US$34 million, decided to settle the arrears through three to five year treasury bills worth US$24 million and tax set-offs amounting to US$5 million.

“We have found ourselves in a situation where we are in debt. We have accumulated some expenses and Government has paid us through treasury bills,” said Mr Nzwere.

“We are holding onto Treasury Bills but as you know, TBs are not cash to run the business so you look at financing costs . . . in finance science there is something called time-value of money; you know a dollar in hand is worth two in the bush.

“So some of the money from Limagrain will go towards financing our Zimbabwe operations and the expansion into West Africa and we believe our relationship with Limagrain will give us the edge as we venture into West Africa, which is largely French speaking apart from Nigeria and Ghana.”

Seed Co has already spread its tentacles into Zambia and Malawi and has invested more than US$25 million in external markets in the last three years, almost half of which went to a seed-processing plant in Malawi with capacity to produce about 60 000 tonnes per annum at a rate of 160 tonnes a day.

About three years ago, Seed Co opened a much bigger facility in Zambia and commissioned a similar but smaller facility in Tanzania, and has started penetrating Nigeria, Kenya, Tanzania, Uganda and the DRC.

The group is also exploring opportunities in Ethiopia.

In Nigeria and Ghana, Seed Co has already released appropriate seed varieties and efforts are underway to multiply these so that the company can have “commercially sellable quantities”.

Plans are also afoot to extend the company’s footprint into French-speaking countries such as Mali and Cameroon.

But Mr Nzwere believes the biggest potential is in Nigeria, the continent’s biggest economy with a GDP of US$503billion – way ahead of South Africa (US$350 billion).

The West African country — with a population of 173,6 million people as at last year — is the 24th biggest economy in the world.

“At the moment, we are in the business development stage in Nigeria; bulking up and multiplying seed varieties.

Nigeria has the potential to demand seed quantities that are much higher than what we have been selling in the rest of Africa,” said Mr Nzwere. “We are selling between 60 000 and 70 000 tonnes of seed, but Nigeria has the potential to demand about 120 000 metric tonnes of seed.

“As you know our turnover was US$120 million to US$130 million, but that is without selling into Nigeria.

“Nigeria alone has a market that is bigger than most of our current markets, added together; so if we were to go and get even 10 percent of that market, Nigeria will become a huge market for us.”

Seed Co has so far made a capital outlay of about US$5 million in Nigeria and Ghana, and following the US$27 million windfall from Limagrain last week, more money will be channelled towards West African operations.

Mr Nzwere said the total spend in that region would be about US$10 million but the figure could rise slightly because “these are going businesses and you never say because we have achieved this, then we stop; you keep opening up in other countries”.

Seed Co reduced its loss for the six months to September by 40 percent to US$7,6 million on lower costs.

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